DOT-COMS

Dot-com is a shorthand term for an Internet retail business. The term
comes from the ".com" extension on most business Web sites,
which stands for "commerce." Perhaps no other sector in the
business world has experienced as much drama, excitement, triumph, and
tragedy in such a short amount of time as the dot-com businesses. In the
late 1990s, thousands of established brick-and-mortar businesses were
taking the plunge into the world of online retail in hopes of cashing in
on the Internet craze. New sites were popping daily in such market
segments as music, apparel, electronics, toys, hardware, pet supplies,
furniture, and books. These companies were raising millions of dollars in
venture capital by promising investors big profits in this exciting
marketplace. It seemed that ecommerce was on the verge of revolutionizing
the retail world in dramatic fashion.

This seemed to be the case during the Christmas season of 1999. Consumers
tripled their online purchases from the previous year, spending more than
$10 billion in the process. The craze reached its zenith with an
advertising blitz during the Super Bowl in January 2000. Approximately
twenty different dot-com companies paid $2.2 million for thirty seconds of
ad time during this popular sporting event. Many of the ads were praised
for their creativity and won numerous advertising awards. The retailers in
turn expected the profits to start rolling in.

WHAT WENT WRONG

Unfortunately, times quickly changed as many of the startup dot-com
businesses stumbled. Pets.com, which made a huge splash during the Super
Bowl, had closed their doors by the following November. Many other
companies followed suit. In all, over 200 dot-coms folded in 2000. There
were many reasons for this reverse-phenomenon, including a changing
economy, poor business strategies, frivolous spending on flashy
advertising campaigns, and an overcrowded marketplace. By comparison,
2001's Super Bowl only attracted three returning dot-com
advertisers.

In the obsessive race to cash in on the dot-com craze, many of the
companies left their business strategies and marketing plans at home. With
the onslaught of dot-coms, many failed to differentiate themselves from
their competitors and define their markets, leading to consumer confusion.
Many of the values that the businesses were offering were lost amidst the
flash and excitement of the Web sites that contained them.

Customer service also became an issue. One of the most highly publicized
cases involved ToysRUs.com, which promised Christmas delivery for orders
placed before December 11, 1999, and then failed to follow through on the
promise. This debacle angered customers and broke the hearts of children
everywhere, causing consumers to wonder how a small dot-com company can
succeed when a proven name like Toys 'R' Us faltered.
ToysRUs.com blamed the problems on heavy Web-site traffic and the
company's own inability to estimate how many orders would be placed
through the site. To make amends, they offered $100 gift certificates to
disgruntled consumers as compensation, but for many it was a case of too
little too late. The damage had been done and many angry shoppers swore
off online purchasing and retreated back to the safe confines of the
brick-and-mortar stores.

Many other established names struggled as well. One advantage for a bigger
company that expanded onto the Internet and then met with some degree of
adversity was the ability to fold back into the parent company and merge
the online business with the brick-and-mortar one. Still, other companies
like WalMart.com and Wal-Mart Stores, Inc. have chosen to remain separate
while making certain adjustments, including layoffs and a reworked
business plan. Reasons for the desire to remain separate can range from
stock options to incremental market valuation.

SECRETS TO SUCCESS

The sure-fire way to succeed in the dot-com marketplace, as well in every
other segment of the business world, is to develop a strong marketing
plan. Many e-tailers failed to do this as they got caught up in the hype
and excitement that the Internet offers. Too many of them were busy
designing sites that offered more style than substance, or racing against
their competitors to be the first of their particular niche in the
marketplace, before they even knew what that marketplace was. Others try
simply to get their message to as many consumers as possible in the
shortest amount of time, before they even understand what that message is.
A successful business plan is one that demonstrates an understanding of
consumers and how to gain their loyalty, while at the same time
controlling costs.

Another obvious but often ignored strategy for dot-com success is to
utilize data. As Kevin J. Clancy stated in
Advertising Age
, "Data must be captured and leveraged to continuously improve the
core business offering and marketing strategy. The most successful
Internet businesses are those that capture meaningful data—from
their customers, prospects and marketing program results—and use
them to enhance their business, build customer relationships and make
smarter decisions. Many dot-coms talk the one-to-one marketing talk; the
only way to back it up is to invest in datamining technology and strategy.
Intelligent use of gathered data is simply the most important competitive
differentiator for Internet concerns. The dot-com world is rich in
innovation, yet feeble in marketing smarts. The next time you hear about a
hip new dot-com business, ask the tough marketing questions to determine
the business's real viability."

Another way for a dot-com business to succeed is through advertising.
Obviously, smaller businesses cannot afford to run a thirty-second
television commercial during the Super Bowl (or any regular show). Print
advertising, especially in a major publication, can also be pricey. Still,
there other alternatives for the savvy business. E-mail is one option for
distributing a message quickly and cheaply and entire lists of prospective
target consumers are available to businesses. There is the chance that
recipients may perceive these e-mailings as unwanted materials (spam) and
react in a negative fashion, so extreme caution should be practiced here.
Banner ads with links can be purchased on larger sites to drive users to
another particular site. In all instances, a business should be careful to
examine the basic rules of "netiquette" and not post their
ads on discussion groups, online forums, and electronic bulletin boards
where this kind of practice is forbidden.

If a dot-com company decides to hire an advertising agency to handle their
marketing, they should do so with extreme caution. Many agencies jumped at
the chance to handle creative and marketing strategies for upstart
companies, but the relationships grew sour as the online marketplace
faltered. Again, a long-term commitment is essential here, instead of a
quick fix
that both the dot-com and the ad shop may be seeking. Both parties should
be consistent and clear about what their plans are and take the time to
make sure that the partnership works on all levels. When this is
ultimately decided, careful planning must be done to create a solid
advertising campaign that stands out from the competition.

Another way to succeed in the competitive dot-com marketplace is for two
companies to join forces with each other. As John Zamoiski wrote in
Brand-week:
"In the new Internet economy, strategic alliances between online
companies—and more importantly those forged between online and
offline companies-will become a budget line item that will deliver high
return on investment. Joint use of distribution channels will afford both
access to target audiences with increased efficiency. These alliances will
come in the form both of short-term promotions and long-term business
relationships where brand equity will be traded and significant reach and
frequency will be achieved. Ranging from complementary offer delivery to
sweepstakes prize supply, joint delivery of loyalty programs, and
referrals, the possibilities are unlimited."

SMALL BUSINESSES IN THE DOT-COM WORLD

The future of the dot-com marketplace still appears clouded at best. The
popular e Toys.com closed its doors in early 2001 after failing to gain a
solid customer base. Bookseller Amazon.com still is experiencing
difficulties in the profit department and could be in for rough roads
ahead. Even the online auction site eBay has its share of problems.

All of this does not bode well for the small business owner interested in
the online marketplace. With all the economic turmoil surrounding it,
upstart dot-coms will have a difficult time convincing investors to part
with their precious venture capital. The days of instant wealth on the
Internet appear to be over, at least for the time being. Only companies
willing to make the sacrifices necessary to develop original sites
offering value and commitment to their consumer base will succeed, and the
process almost certainly promises to be a longer one than before.

Still, there are several appealing options for small businesses interested
in expanding out into the dot-com marketplace. One such option would be to
join forces with a bigger name to help sell one's goods. For
example, Amazon.com offers smaller retailers the chance to hawk their
wares on their site for a small fee. Other megasites are following suit
with mixed results. Another scenario would be to set up a company that
essentially profits from the failures of others. This would be a site
specializing in moving liquidated merchandise that was originally intended
to be sold online. These liquidators give failed dot-coms the chance to
unload their goods, which they then sell to consumers at a bargain price
that still nets them a profit.

Perhaps the best approach for a small business is to sit back and wait for
the dot-com market to settle at this stage in the game. In the meantime, a
small company can continue to use the Internet as a powerful business tool
instead of relying on it as a separate business sector. As technology
continues to advance, a new wave of dot-com businesses could emerge that
has the benefit of the knowledge gained from the mistakes of their
predecessors.

FURTHER READING:

Applegate, Jane. "Dot-coms to Help Small Business Owners
Cope."
San Diego Business Journal.
December 6, 1999.

Clancy, Kevin J. "Look, Ma, No Strategy! Being First Is Not Enough
For Dot-Coms Now; Times Demand Strategic Plans."
Advertising Age.
October 11, 1999.

Cronin, Mary J.
Doing Business on the Internet: How the Electronic Highway Is
Transforming American Companies.
Van Nostrand Reinhold, 1994.